AMP Corporation (calendar-year-end) has 2017 taxable income of $900,000 for purp

Question

AMP Corporation (calendar-year-end) has 2017 taxable income of $900,000 for purposes of computing the §179 expense. During 2017, AMP acquired the following assets: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)

a. What is the maximum amount of §179 expense AMP may deduct for 2017?

b.

What is the maximum total depreciation expense, including §179 expense, that AMP may deduct in 2017 on the assets it placed in service in 2017 assuming no bonus depreciation? (Round your answer to the nearest whole dollar amount.)

Placed in Asset Service Basis Machinery September 12 $ 1,300,000 Computer equipment February 10 370,000 Office building April 2 485,000 Total $ 2,155,000

Explanation / Answer

Part a)

The maximum amount of §179 expense AMP may deduct for 2017 is calculated as below:

The total value of §179 qualified property is $1,670,000 (1,300,000+370,000). Office building is not treated as §179 qualified property.

As the total value of qualified property of $1,670,000 is less than the applicable threshold of $2,000,000 for 2017, the maximum amount of §179 expense AMP may deduct would be $500,000. There would be be no phaseout of §179 expense as the value of qualified property doesnt exceed the threshold limit.

Answer for Part a) is $500,000

_____

Part b)

The maximum amount of depreciation expense (with half year convention) is determined as below:

Answer for Part b) is $697,142

_____

Notes:

1) The maximum amount of depreciation is calculated by applying §179 expense against machinery which is a 7-year property as against computer equipment which is a 5-year property.

Asset Original Asset Basis (A) §179
Expense (B) Remaining Basis (C=A-B) Depreciation Rate (D) Depreciation Expense (C*D) Machinery (7-Year Property) 1,300,000 500,000 800,000 14.29% 114,320 Computer Equipment (5-Year Property) 370,000 0 370,000 20.00% 74,000 Office Building (39-Year Property) 485,000 0 485,000 1.819% 8,822 §179 Expense 500,000 Total Depreciation Expense $697,142

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